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AB-1996-4
APPELLATE BODY
I. Introduction
The Philippines and Brazil appeal
from certain issues of law and legal interpretations in the Panel
Report, Brazil - Measures Affecting Desiccated Coconut1
(the "Panel Report"). That Panel was established to
consider a complaint by the Philippines against Brazil relating
to the countervailing duties imposed by Brazil on imports of desiccated
coconut from the Philippines pursuant to Interministerial Ordinance
No. 11 (the "Ordinance") on 18 August 1995.
The application for initiation
of the countervailing duty investigation was filed with the Brazilian
authorities on 17 January 1994. The investigation was initiated
on 21 June 1994, provisional countervailing duties were imposed
on 23 March 1995, and definitive countervailing duties were imposed
on 18 August 1995. The Marrakesh Agreement Establishing the
World Trade Organization2 (the "WTO Agreement")
entered into force for both parties to this dispute, Brazil and
the Philippines, on 1 January 1995, that is, after the application
for, and the initiation of, the investigation and prior to the
imposition of the provisional and definitive countervailing duties.
The Panel Report was circulated
to Members of the World Trade Organization (the "WTO")
on 17 October 1996. It contains the following conclusions:
b. The Agreement on Agriculture
does not constitute applicable law for the purposes of this dispute.
As a result, the substance of the Philippines' claims under that
Agreement cannot be considered by this Panel. c. The Philippines' claim regarding Brazil's failure to consult is not within the terms of reference of this Panel and therefore its substance cannot be considered.3
The Panel made the following
recommendation:
On 16 December 1996, the Philippines notified the Dispute Settlement Body5 (the "DSB") of its intention to appeal certain issues of law covered in the Panel Report and legal interpretations developed by the Panel, pursuant to paragraph 4 of Article 16 of the Understanding on Rules and Procedures Governing the Settlement of Disputes (the "DSU") and filed a Notice of Appeal with the Appellate Body, pursuant to Rule 20 of the Working Procedures for Appellate Review (the "Working Procedures").
On 9 January 1997, the Philippines
filed an appellant's submission.6 On 14 January 1997, Brazil filed
an appellant's submission pursuant to Rule 23(1) of the Working
Procedures. On 24 January 1997, Brazil filed an appellee's
submission pursuant to Rule 22 of the Working Procedures
and the Philippines filed an appellee's submission pursuant to
Rule 23(3) of the Working Procedures. That same day, the
European Communities and the United States submitted third participants'
submissions pursuant to Rule 24 of the Working Procedures.
The oral hearing provided for
in Rule 27 of the Working Procedures was held on 30 January
1997. The participants and third participants presented their
arguments and answered questions from the Division of the Appellate
Body hearing the appeal.
II. Arguments of Participants
and Third Participants
A. The Philippines
The Philippines appeals from
certain of the Panel's legal findings and conclusions, as well
as from certain legal interpretations developed by the Panel.
The Philippines submits that the Panel erred in concluding that
Article VI of the General Agreement on Tariffs and Trade 1994
(the "GATT 1994") cannot be independently applied in
transitional situations where the Agreement on Subsidies and
Countervailing Measures (the "SCM Agreement")
is not applicable pursuant to Article 32.3 of the SCM Agreement,
and that the inapplicability of Article VI of the GATT 1994 renders
Articles I and II of the GATT 1994 inapplicable. In the
Philippines' view, the Panel erroneously treated the Philippines'
reliance on Articles I and II of the GATT 1994 as one that "derive[s]
from" the Philippines' invocation of Article VI of the GATT
1994.
According to the Philippines,
the Panel's analysis is flawed by its failure to address this
dispute in accordance with the proper relationship between Articles
I, II and VI of the GATT 1994 and Article 32.3 of the SCM
Agreement. The Panel erred in starting and focusing its analysis
on Article 32.3 of the SCM Agreement, which the Philippines
did not invoke. The Panel should have first evaluated whether
the disputed measure is inconsistent with Articles I and II of
the GATT 1994, and if it was found to be inconsistent, then the
Panel should have examined whether the measure could be justified
under Article VI of the GATT 1994. Moreover, because Brazil's
defence is predicated on an exception (Article 32.3 of the SCM
Agreement) to yet another exception (Article VI of the GATT
1994) to the general rule (Articles I and II of the GATT 1994),
the Panel should have interpreted Article 32.3 of the SCM Agreement
narrowly.
The Philippines argues that,
when the WTO Agreement entered into force for both Brazil
and the Philippines on 1 January 1995, the Philippines became
entitled to invoke its rights under Articles I and II of
the GATT 1994, and its rights arising under Article VI of the
GATT 1994, in regard to any countervailing measure imposed against
the Philippines by any WTO Member, including Brazil, after
the WTO Agreement's entry into force. Article 32.3 of
the SCM Agreement, at most, precludes the application of
the SCM Agreement to WTOera measures applied for
before the entry into force of the WTO Agreement due to
the differences between the SCM Agreement and the Agreement
on Interpretation and Application of Articles VI, XVI and XXIII
of the General Agreement on Tariffs and Trade (the "Tokyo
Round SCM Code"), but such a transitional rule does not
affect the applicability of Articles I, II and VI of the GATT
1994, whose texts are exactly identical to their counterpart provisions
in the General Agreement on Tariffs and Trade 1947 (the
"GATT 1947").
The Philippines asserts that
international law principles as codified in the Vienna Convention
on the Law of Treaties (the "Vienna Convention")
ensure the non-retroactive application of treaties. Article 28
of the Vienna Convention7 insulates an act that took place
before the new treaty's entry into force from the obligations
of that treaty. As the substance and conclusion of the investigation
leading to the imposition by Brazil of the countervailing measure
at issue in this dispute occurred after the entry into force of
the WTO Agreement, Articles I, II and VI of the GATT 1994
constitute the law applicable to the measure in dispute, and such
applicability does not involve retroactivity. The Philippines
challenges the Panel's finding that the application of Article
VI of the GATT 1994 to the countervailing duty measure in
dispute leads to a "manifestly absurd or unreasonable"
result. In the Philippines' view, application of Article VI
of the GATT 1994 to a definitive countervailing duty is no less
fair than applying WTO norms to other pre-WTO measures, such as
occurred in United States Standards for Reformulated
and Conventional Gasoline8 ("United States - Gasoline").
In the Philippines' view, the
Panel improperly disregarded the Philippines' argument that the
transitional decisions9 recognize the right of WTO Members to invoke
WTO norms even in situations involving elements that occurred
prior to the entry into force of the WTO Agreement. The
Decision on Transitional Co-Existence of the Tokyo Round SCM Code
and the WTO Agreement expressly recognizes the availability of
WTO dispute resolution not only as an option, but as an immediate
preemptive choice in matters also covered by the Tokyo
Round SCM Code. The Decision on Consequences of Withdrawal
from or Termination of the Tokyo Round SCM Code is permissive,
expressly recognizing the right of a signatory to the Tokyo
Round SCM Code, that is also a WTO Member, to choose under
which regime it will vindicate its rights. The Philippines contends
that it has the procedural right to resort to the DSU to
enforce its substantive WTO rights.
While Article 28 of the Vienna
Convention recognizes that its limitations on non-retroactivity
may be qualified where "a different intention appears from
the treaty or is otherwise established", the Philippines
argues that no such intention is indisputably established by Article 32.3
of the SCM Agreement and the other provisions upon which
the Panel relied. It was wrong for the Panel Report to vary the
plain meaning of the term, "this Agreement", in Article
32.3 of the SCM Agreement so as to refer also to the GATT
1994.
In the Philippines' view, the
context of Article 32.3 of the SCM Agreement does
not warrant inferring a reference to Article VI of the GATT 1994.
Article 32.1 of the SCM Agreement confirms that the reference
in Article 32.3 of the SCM Agreement to "this Agreement"
means only the SCM Agreement. The omission in the SCM
Agreement of note 2 to the preamble of the Tokyo Round
SCM Code does not support, and in fact undercuts, the Panel's
non-separability finding. The presence of cross-references from
Articles 10 and 32.1 of the SCM Agreement to Article VI
of the GATT 1994 does not make Article VI of the GATT 1994 so
inseparable from the SCM Agreement as to negate the rights
of WTO Members to invoke Article VI of the GATT 1994 independently.
Such a right to choose existed under the pre-WTO regime despite
similar cross-references in the Tokyo Round SCM Code to
Article VI of the GATT 1947. Furthermore, it was improper for
the Panel to support its non-separability finding with the broad
argument that Article 7.1 of the DSU fosters an "integrated"
dispute settlement framework that "allows a panel to interpret
provisions of covered agreements in the light of the WTO Agreement
as a whole".10
According to the Philippines,
the object and purpose of Article 32.3 of the SCM Agreement
and the WTO Agreement also do not warrant interpreting
the phrase "this Agreement" in Article 32.3 of the SCM
Agreement to include Article VI of the GATT 1994.
In the Philippines' view, the
panel report in United States - Countervailing Duties on Fresh,
Chilled and Frozen Pork from Canada11 ("United States
- Pork") offers persuasive guidance on the separate applicability
of Article VI of the GATT 1994. The panel in European Economic
Community - Payments and Subsidies Paid to Processors and Producers
of Oilseeds and Related Animal-Feed Proteins12 ("EEC
- Oilseeds") in effect addressed the separability issue
and resolved it in favour of applying GATT 1947 separately from
the Tokyo Round SCM Code. In addition, the Panel Report
failed to give due weight to the United States - Gasoline
case as evidence that a complaining WTO Member is not required
to invoke all agreements that are potentially relevant to a dispute.
In the view of the Philippines,
the unavailability of the SCM Agreement's definitions,
or the possibility of interpretations inconsistent therewith,
when Article VI of the GATT 1994 is interpreted independently,
do not negate the right of WTO Members to invoke Article VI of
the GATT 1994 independently in transitional situations where the
SCM Agreement is inapplicable. In addition, when independently
applied, Article VI of the GATT 1994 can be properly interpreted
in light of practice under Article VI of the GATT 1947 that antedated,
and/or was not dependent on, the Tokyo Round SCM Code.
The Philippines further argues that it was not the intent of the original WTO Members to allow prospective new WTO Members to use applications for investigations filed prior to their accession to the WTO Agreement as a basis for insulating from the GATT 1994 any countervailing measures that such prospective WTO Members may impose after their admission into the WTO. In addition, the Panel's ruling could leave some WTO Members without any remedy for at least five years, until such time as the "sunset" review provision in Article 21.3 of the SCM Agreement becomes effective.
If the Appellate Body reverses
the Panel's conclusions that Articles I, II and VI of the GATT
1994 are inapplicable to this dispute, the Philippines requests
that the Appellate Body adopt a procedure for this appeal under
Rule 16(1) of the Working Procedures for the resolution
of the substantive merits of the Philippines' claims. The Philippines
incorporates its arguments made before the Panel and submits that
the subsidy and injury determinations of the Ordinance, and the
countervailing measure based thereon, are inconsistent with Articles
I and II of the GATT 1994, and not justified by Articles VI:3
and VI:6(a) of the GATT 1994.
With respect to the point of
appeal raised in Brazil's appellant's submission, the Philippines
argues that Brazil did not ask the Panel to refrain from considering
whether or not Articles I and II of the GATT 1994 are applicable
to this dispute. On the contrary, Brazil requested the Panel
to consider the issue of the applicability or inapplicability
of the GATT 1994. In any event, Articles I and II of the GATT
1994 are covered by the terms of reference because they are "relevant
provisions" within the agreement "cited" by the
Philippines.
B. Brazil
Brazil generally agrees with
the Panel's findings and conclusions concerning the law applicable
to this dispute, but nevertheless appeals on one issue. Brazil
claims that the issue of the applicability of Articles I and II
of the GATT 1994 was not within the terms of reference of the
Panel in this dispute and should not have been addressed by the
Panel.
With respect to the points of
appeal raised in the Philippines' appellant's submission, Brazil
considers it appropriate, and in accordance with principles of
international law, that the Panel first determined whether it
had jurisdiction to consider the dispute before considering the
substantive merits of the Philippines' claims. The question of
whether the WTO Agreement applies to the substance of the
dispute is not merely a "defence" as claimed by the
Philippines, but a fundamental jurisdictional issue. While Brazil
does not contest that the Philippines has the procedural right
to resort to the DSU to enforce its substantive WTO rights,
Brazil asserts that the Panel properly found that this dispute
did not involve any substantive WTO rights. The Panel's conclusion
that it did not have jurisdiction is correct, and the Tokyo
Round SCM Code constitutes the law applicable to this dispute.
In Brazil's view, the Panel
properly applied the customary rules of interpretation of public
international law as set out in Articles 31 and 32 of the Vienna
Convention to conclude that the WTO Agreement did not
apply to this dispute. The plain language of Article 32.3 of
the SCM Agreement prohibits the application of at least
the SCM Agreement to this dispute, and the context of the
WTO Agreement indicates that Article 32.3 of the SCM Agreement
prevents the application of any portion of the WTO Agreement
to this dispute. There are numerous indicia that the WTO Agreement
and its Multilateral Trade Agreements were intended to apply as
a whole. Article II:2 of the WTO Agreement states that
the agreements and associated legal instruments included in Annexes
1, 2 and 3 -- encompassing both the GATT 1994 and the SCM Agreement
-- are "integral parts" of the Agreement. There is
a unified dispute settlement mechanism that applies to disputes
raised under the WTO Agreement, the GATT 1994 and the other
covered agreements. The general interpretative note to Annex
1A of the WTO Agreement indicates that the GATT 1994 and
the other agreements are to be considered together. Article 10
of the SCM Agreement indicates that countervailing duties
may only be imposed in accordance with the provisions of Article VI
of the GATT 1994 and the terms of the SCM Agreement. As
the Panel noted, several of the provisions of the SCM Agreement
seek to interpret or provide guidance on terms used in Article
VI. As the Panel further observed, applying Article VI of the
GATT 1994 separately from Article VI of the GATT 1994 and
the SCM Agreement could lead to differing interpretations
of the benefits and obligations conferred by Article VI of the
GATT 1994 as between the same Members. In Brazil's view, United States - Gasoline does not support the application of Article VI of the GATT 1994 without reference to the SCM Agreement. The Agreement on Technical Barriers to Trade, invoked in United States - Gasoline, does not purport to interpret any articles of GATT 1994, nor does it contain any language similar to that of Article 10 of the SCM Agreement linking it to specific articles of the GATT 1994.
Brazil asserts that the Panel's
consideration of the Decision on Consequences of Withdrawal from
or Termination of the Tokyo Round SCM Code was consistent with
the reference to a "subsequent agreement" within the
meaning of Article 31(3)(a) of the Vienna Convention.
To the extent that "subsequent practice" within the
meaning of Article 31(3)(b) of the Vienna Convention has
developed, it supports the Panel's conclusion that Article VI
of the GATT 1994 does not apply to this dispute. Brazil further
asserts that Article 28 of the Vienna Convention, as a
"relevant rule of international law applicable in the relations
between the parties" referred to in Article 31(3)(c) of the
Vienna Convention, supports the Panel's conclusions on
the law applicable to this dispute.
Brazil contends that the panel
reports in United States - Pork and EEC - Oilseeds,
invoked by the Philippines, provide no guidance for this dispute.
As the issue of applicable law was never raised in United
States - Pork, it therefore gives no indication of past practice
on this issue. Moreover, because the structure of the various
agreements in this case differs from the structure of the agreements
in EEC - Oilseeds, that panel report provides no guidance
on the interpretation of the WTO Agreement.
Should the Appellate Body find
that the WTO Agreement applies, Brazil argues that it is
not appropriate for the Appellate Body to rule on the substantive
issues in this dispute. The Appellate Body's authority is limited
by paragraphs 6 and 13 of Article 17 of the DSU. Brazil
further argues that United States - Gasoline does not support
the examination by the Appellate Body of these issues. If, however,
the Appellate Body considers it appropriate to address the substantive
issues, Brazil incorporates by reference all its submissions,
both oral and written, to the Panel concerning those issues.
If the Appellate Body decides that Article VI of the GATT 1994
applies, it must be interpreted on its own without reference to
the Tokyo Round SCM Code or the SCM Agreement.
C. European Communities
The European Communities supports
the legal findings and conclusions of the Panel. The European
Communities asserts that the Panel correctly concluded that Article
VI of the GATT 1994 is inapplicable to the measure in dispute
and that the inapplicability of Article VI of the GATT 1994 also
renders Articles I and II of the GATT 1994 inapplicable.
In the European Communities'
view, the Panel's findings are in conformity with the principles
of customary international law regarding the temporal application
of treaty obligations, contained in Article 28 of the Vienna
Convention, which apply "[u]nless a different intention
appears from the treaty or is otherwise established". The
Panel correctly considered the text of the relevant provisions
in the light of their context, and of the object and purpose of
the WTO Agreement, to reach its legal conclusion that Article
VI of the GATT 1994 cannot be applied independently. It was,
therefore, no longer necessary for the Panel to resort to the
subsidiary rule contained in Article 28 of the Vienna Convention.
In any case, the application of this subsidiary rule would also
lead to the conclusion that Article VI of the GATT 1994 does not
apply in the present dispute.
According to the European Communities,
the United States - Pork and EEC - Oilseeds panel
reports invoked by the Philippines are not relevant to this dispute,
as the relationship of the GATT 1947 to the Tokyo Round SCM
Code is different from the relationship of the SCM Agreement
to the GATT 1994. The transitional decisions do not support the
independent application of Article VI of the GATT 1994. Moreover,
the independent application of Article III:4 of the GATT 1994
in United States - Gasoline does not support the independent
application of Article VI of the GATT 1994, as the relationship
between Article III of the GATT 1994 and the Agreement on Technical
Barriers to Trade is different from the relationship between
Article VI of the GATT 1994 and the SCM Agreement.
D. United States
The United States disagrees
with certain of the legal findings and conclusions of the Panel,
and requests that the Appellate Body take into consideration its
arguments before the Panel as described in paragraphs 211-224
of the Panel Report. The United States asserts that Article VI
of the GATT 1994 is applicable to Brazil's countervailing duty
measure and that, as of 1 January 1995, Brazil was bound to levy
countervailing duties consistently with the provisions of the
GATT 1994. If the Appellate Body considers the substantive merits
of this dispute, it must do so under Article VI of the GATT 1994
alone, without reference to the Tokyo Round SCM Code.
The United States submits that the panel report in EEC - Oilseeds
is instructive in this regard.
III. Issues Raised in this
Appeal
The Philippines appeals from
two legal findings and conclusions of the Panel. First, the Philippines
submits that the Panel erred in concluding that Article VI of
the GATT 1994 cannot be applied independently in transitional
situations where the SCM Agreement is not applicable pursuant
to Article 32.3 of the SCM Agreement. Second, the Philippines
claims that the Panel erred in finding that the inapplicability
of Article VI of the GATT 1994 also renders Articles I and II
of the GATT 1994 inapplicable. Brazil appeals from the Panel's
legal findings and conclusions concerning Articles I and
II of the GATT 1994. Brazil argues that the issue of the consistency
of Brazil's countervailing duty measure with its obligations under
Articles I and II of the GATT 1994 was not within the terms of
reference of the Panel.
On the basis of the written
submissions and oral statements made by the participants and third
participants, this appeal raises the following issues:
2. Whether a finding with respect
to the applicability of Article VI of the GATT 1994 determines
the applicability of Articles I and II of the GATT 1994; and
3. Whether the Philippines'
claims under Articles I and II of the GATT 1994 were within the
terms of reference of the Panel.
IV. Applicability of Article
VI of the GATT 1994
A. Background
This appeal deals with a countervailing
duty investigation which was initiated pursuant to an application
filed with the Brazilian authorities on 17 January 1994. The
investigation was initiated on 21 June 1994, provisional countervailing
duties were imposed on 23 March 1995, and definitive countervailing
duties were imposed on imports of desiccated coconut from the
Philippines on 18 August 1995. The WTO Agreement entered
into force for both parties to this dispute, Brazil and the Philippines,
on 1 January 1995.
With respect to the measure
at issue in this appeal, we see a decision to impose a definitive
countervailing duty as the culminating act of a domestic legal
process which starts with the filing of an application by the
domestic industry, includes the initiation and conduct of an investigation
by an investigating authority, and normally leads to a preliminary
determination and a final determination. A positive final determination
that subsidized imports are causing injury to a domestic industry
authorizes the domestic authorities to impose a definitive countervailing
duty on subsidized imports.
B. WTO Agreement: An Integrated
System
The WTO Agreement is
fundamentally different from the GATT system which preceded it.
The previous system was made up of several agreements, understandings
and legal instruments, the most significant of which were the
GATT 1947 and the nine Tokyo Round Agreements, including the Tokyo
Round SCM Code. Each of these major agreements was a treaty
with different membership, an independent governing body and a
separate dispute settlement mechanism.13 The GATT 1947 was administered
by the CONTRACTING PARTIES, whereas the Tokyo Round SCM Code
was administered by the Tokyo Round Committee on Subsidies and
Countervailing Duty Measures comprised of the signatories to that
Code. 14 With respect to disputes brought under Article XXIII
of the GATT 1947, the CONTRACTING PARTIES were responsible for
dispute settlement, including establishment of panels, adoption
of panel reports, surveillance of implementation of rulings and
recommendations, and authorization of suspension of concessions
or other obligations. The Tokyo Round Committee on Subsidies
and Countervailing Measures was responsible for administering
and monitoring dispute settlement under Articles 12, 13, 17 and
18 of the Tokyo Round SCM Code.
As a result of the separate
legal identity of the GATT 1947 and the Tokyo Round SCM Code,
a complaining party either had to bring a dispute under Article
VI of the GATT 1947, in which case it would invoke the dispute
settlement provisions of Article XXIII of the GATT 1947, or alternatively,
under the provisions of the Tokyo Round SCM Code, in which
case it would commence consultations under that Code.
Most disputes involving countervailing duty measures between 1979
and 1994 were brought under the Tokyo Round SCM Code15.
In the United States - Pork case, notwithstanding that
both Canada and the United States were signatories to the Tokyo
Round SCM Code, Canada chose to bring the matter under the
dispute settlement provisions of Article XXIII of the GATT 1947,
relying solely on its claims under Article VI of the GATT 1947.
Unlike the previous GATT system,
the WTO Agreement is a single treaty instrument which was
accepted by the WTO Members as a "single undertaking".
Article II:2 of the WTO Agreement provides that the Multilateral
Trade Agreements in Annexes 1, 2 and 3 are "integral parts"
of the WTO Agreement, binding on all Members. Annex 1A
contains thirteen multilateral agreements relating to trade in
goods, including the GATT 1994 which was incorporated by reference
into that Annex. A general interpretative note was included in
Annex 1A in order to clarify the legal relationship of the GATT
1994 with the other agreements in Annex 1A. It provides that
in the event of a conflict between a provision of the GATT 1994
and a provision of another agreement in Annex 1A, the latter shall
prevail to the extent of the conflict. Article II:4 of the WTO
Agreement provides that the GATT 1994 "as specified in
Annex 1A ... is legally distinct from the General Agreement on
Tariffs and Trade, dated 30 October 1947 ...".
The single undertaking is further
reflected in the provisions of the WTO Agreement dealing
with original membership, accession, non-application of the Multilateral
Trade Agreements between particular Members, acceptance of the
WTO Agreement, and withdrawal from it.16 Within this framework,
all WTO Members are bound by all the rights and obligations in
the WTO Agreement and its Annexes 1, 2 and 3.
The DSU provides an integrated
dispute settlement mechanism applicable to disputes arising under
any of the "covered agreements". Article 2 of the DSU
provides that the DSB has the "authority to establish panels,
adopt panel and Appellate Body Reports, maintain surveillance
and implementation of rulings and recommendations, and authorize
suspension of concessions and other obligations under the covered
agreements". The "covered agreements" include
the WTO Agreement, the Agreements in Annexes 1 and 2, as
well as any Plurilateral Trade Agreement in Annex 4 where its
Committee of signatories has taken a decision to apply the DSU.
17
In a dispute brought to the DSB, a panel may deal with all the
relevant provisions of the covered agreements cited by the parties
to the dispute in one proceeding.18
C. GATT 1994 within the WTO
Agreement
The WTO Agreement is
a successor treaty to the GATT 1947, the Tokyo Round SCM Code
and the other agreements and understandings which formed the previous
GATT system. Although it is a new treaty which the WTO Members
accepted definitively, Article XVI:1 of the WTO Agreement
provides as follows:
The GATT 1994 was incorporated
by reference into Annex 1A of the WTO Agreement. The reference
language includes the provisions of the GATT 1947, as rectified,
amended or modified before the entry into force of the WTO
Agreement; the provisions of legal instruments that entered
into force under the GATT 1947 prior to the entry into force of
the WTO Agreement, such as protocols and certifications
relating to tariff concessions, protocols of accession (excluding
the provisions concerning provisional application and "grandfather
rights"), decisions on waivers granted under Article XXV
of the GATT 1947 and other decisions of the CONTRACTING PARTIES
to the GATT 1947; as well as the Understandings which amended
specific articles of the GATT 1947 as a result of the Uruguay
Round Multilateral Trade Negotiations. In many ways, therefore,
the provisions of the GATT 1994 differ from the provisions of
the GATT 1947.
The relationship between the
GATT 1994 and the other goods agreements in Annex 1A is complex
and must be examined on a case-by-case basis. Although the provisions
of the GATT 1947 were incorporated into, and became a part of
the GATT 1994, they are not the sum total of the rights and obligations
of WTO Members concerning a particular matter. For example, with
respect to subsidies on agricultural products, Articles II, VI
and XVI of the GATT 1994 alone do not represent the total rights
and obligations of WTO Members. The Agreement on Agriculture
and the SCM Agreement reflect the latest statement of WTO
Members as to their rights and obligations concerning agricultural
subsidies. The general interpretative note to Annex 1A was added
to reflect that the other goods agreements in Annex 1A, in many
ways, represent a substantial elaboration of the provisions of
the GATT 1994, and to the extent that the provisions of the other
goods agreements conflict with the provisions of the GATT 1994,
the provisions of the other goods agreements prevail. This does
not mean, however, that the other goods agreements in Annex 1A,
such as the SCM Agreement, supersede the GATT 1994. As
the Panel has said:
D. Principle of Non-Retroactivity
of Treaties
The fundamental question in
this case is one of the temporal application of one set of international
legal norms, or the successor set of norms, to a particular measure
taken during the period of coexistence of the GATT 1947
and the Tokyo Round SCM Code with the WTO Agreement.
Article 28 of the Vienna Convention contains a general
principle of international law concerning the non-retroactivity
of treaties. It provides as follows:
Article 28 states the general
principle that a treaty shall not be applied retroactively "unless
a different intention appears from the treaty or is otherwise
established". Absent a contrary intention, a treaty cannot
apply to acts or facts which took place, or situations which ceased
to exist, before the date of its entry into force. Article 32.3
of the SCM Agreement is an express statement of intention
which we will now examine.
E. Interpretation of Article
32.3 of the SCM Agreement
1. Text
Article 32.3 of the SCM Agreement
reads as follows:
Examination of the ordinary
meaning of this provision alone could lead us to the conclusion
that the term, "this Agreement", in Article 32.3 means
the SCM Agreement. However, it is necessary also to consider
this provision in its context and in light of the object and purpose
of the WTO Agreement.
2. Context
The relationship between the
SCM Agreement and Article VI of the GATT 1994 is set out
in Articles 10 and 32.1 of the SCM Agreement. Article
10 reads as follows:
Members shall take all necessary
steps to ensure that the imposition of a countervailing duty36
on any product of the territory of any Member imported into the
territory of another Member is in accordance with the provisions
of Article VI of GATT 1994 and the terms of this
Agreement. Countervailing duties may only be imposed pursuant
to investigations initiated and conducted in accordance with the
provisions of this Agreement and the Agreement on Agriculture.
Article 32.1 reads as follows:
From reading Article 10, it
is clear that countervailing duties may only be imposed in accordance
with Article VI of the GATT 1994 and the SCM Agreement.
A countervailing duty being a specific action against a subsidy
of another WTO Member, pursuant to Article 32.1, it can only be
imposed "in accordance with the provisions of GATT 1994,
as interpreted by this Agreement". The ordinary meaning
of these provisions taken in their context leads us to the conclusion
that the negotiators of the SCM Agreement clearly intended
that, under the integrated WTO Agreement, countervailing
duties may only be imposed in accordance with the provisions of
Part V of the SCM Agreement and Article VI of the
GATT 1994, taken together. If there is a conflict between the
provisions of the SCM Agreement and Article VI of the GATT
1994, furthermore, the provisions of the SCM Agreement
would prevail as a result of the general interpretative note to
Annex 1A.
We turn to the omission of note
2 to the preamble of the Tokyo Round SCM Code from the
SCM Agreement. That note reads:
This note related to a provision
in the preamble to the Tokyo Round SCM Code which demonstrated
the Tokyo Round signatories' desire "to apply fully and to
interpret the provisions of Articles VI, XVI and XXIII" of
the GATT 1947. The preamble was not retained in the new text
of the SCM Agreement. Consequently, the note also disappeared.
The SCM Agreement contains a set of rights and obligations
that go well beyond merely applying and interpreting Articles
VI, XVI and XXIII of the GATT 1947. The title to the SCM Agreement
was also modified in this respect. Like the Panel, "we do
not consider that the exclusion of this provision from the SCM
Agreement sheds much light on the question before us".20
If Article 32.3 is read in conjunction
with Articles 10 and 32.1 of the SCM Agreement, it becomes
clear that the term "this Agreement" in Article 32.3
means "this Agreement and Article VI of the GATT
1994". We agree with the Panel that:
3. Object and Purpose of
the WTO Agreement
The fact that Article VI of
the GATT 1947 could be invoked independently of the Tokyo Round
SCM Code under the previous GATT system22 does not mean that
Article VI of GATT 1994 can be applied independently of the SCM
Agreement in the context of the WTO. The authors of the new
WTO regime intended to put an end to the fragmentation that had
characterized the previous system. This can be seen from the
preamble to the WTO Agreement which states, in pertinent
part:
Article II:2 of the WTO Agreement
also provides that the Multilateral Trade Agreements are "integral
parts" of the WTO Agreement, "binding on all
Members". The single undertaking is further reflected in
the articles of the WTO Agreement on original membership,
accession, non-application, acceptance and withdrawal. Furthermore,
the DSU establishes an integrated dispute settlement system
which applies to all the "covered agreements", allowing
all the provisions of the WTO Agreement relevant to a particular
dispute to be examined in one proceeding.
The Appellate Body sees Article
32.3 of the SCM Agreement as a clear statement that for
countervailing duty investigations or reviews, the dividing line
between the application of the GATT 1947 system of agreements
and the WTO Agreement is to be determined by the date on
which the application was made for the countervailing duty investigation
or review. Article 32.3 has limited application only in specific
circumstances where a countervailing duty proceeding, either an
investigation or a review, was underway at the time of entry into
force of the WTO Agreement. This does not mean that the
WTO Agreement does not apply as of 1 January 1995 to all
other acts, facts and situations which come within the provisions
of the SCM Agreement and Article VI of the GATT 1994.
However, the Uruguay Round negotiators expressed an explicit intention
to draw the line of application of the new WTO Agreement
to countervailing duty investigations and reviews23 at a different
point in time from that for other general measures.24 Because a
countervailing duty is imposed only as a result of a sequence
of acts, a line had to be drawn, and drawn sharply, to avoid uncertainty,
unpredictability and unfairness concerning the rights of states
and private parties under the domestic laws in force when the
WTO Agreement came into effect.
We agree with the Philippines
that the transitional decisions approved by the Tokyo Round Subsidies
and Countervailing Measures Committee and the CONTRACTING PARTIES25
do not modify the scope of rights and obligations under the WTO
Agreement. We believe, however, that they contribute to understanding
the significance of Article 32.3 of the SCM Agreement as
a transitional rule. The Decision on Transitional Co-Existence
of the GATT 1947 and the WTO Agreement and the Decision on Transitional
Co-Existence of the Tokyo Round SCM Code and the WTO Agreement
provide for the legal termination of the GATT 1947 and the Tokyo
Round SCM Code one year after the date of entry into force
of the WTO Agreement, i.e. by 31 December 1995. They also
permit WTO Members, during the period of co-existence of the GATT
1947 and the Tokyo Round SCM Code with the WTO Agreement,
to bring their disputes under the DSU where the measure
in issue is one to which the WTO Agreement applies.
The Decision on Consequences
of Withdrawal from or Termination of the Tokyo Round SCM Code,
adopted by the Tokyo Round Subsidies and Countervailing Measures
Committee, extended dispute settlement under the Tokyo Round
SCM Code for two years, one year beyond the legal termination
of the Tokyo Round SCM Code. The Tokyo Round Committee
on Subsidies and Countervailing Measures was to remain in operation
by agreement of the signatories to the Tokyo Round SCM Code
until 31 December 1996, to deal with disputes arising out
of countervailing duty investigations or reviews initiated pursuant
to applications made prior to 1 January 1995. Signatories to
the Tokyo Round SCM Code agreed to make their best efforts
to expedite domestic investigations and dispute settlement procedures
to permit the Tokyo Round Subsidies and Countervailing Measures
Committee to consider covered disputes within this two-year period.
This Decision avoided the application of Article 70 of the Vienna
Convention, which provides that the termination of a treaty
releases the parties from any obligation further to perform the
treaty.
Like the Panel, "we are
hesitant, in interpreting the WTO Agreement, to give great weight
to the effect of decisions that had not yet been taken at the
time the WTO Agreement was signed". We agree with the Panel's
statement that:
While we agree with the Panel
that these transitional decisions are of limited relevance in
determining whether Article VI of the GATT 1994 can be applied
independently of the SCM Agreement, they reflect the intention
of the Tokyo Round SCM Code signatories to provide a forum
for dispute settlement arising out of disputes under the Tokyo
Round SCM Code for one year after its legal termination date.
At the time the Tokyo Round SCM Code signatories agreed
to these decisions, they were fully cognizant of the implications
of the operation of Article 32.3 of the SCM Agreement.
We agree with the Panel that
the complaining party in this dispute, the Philippines, had legal
options available to it, and, therefore, was not left without
a right of action as a result of the operation of Article 32.3
of the SCM Agreement. Until 31 December 1995, the GATT
1947 continued to co-exist with the WTO Agreement, and
dispute settlement was available to the Philippines pursuant to
Articles VI and XXIII of the GATT 1947. Until 31 December
1996, as a result of the Decision on Consequences of Withdrawal
from or Termination of the Tokyo Round SCM Code approved by the
signatories to the Tokyo Round SCM Code, dispute settlement
was available under the provisions of the Tokyo Round SCM Code.
Within a reasonable period of time after the definitive countervailing
duty was imposed, the Philippines had the right to request a review
pursuant to Article 21.2 of the SCM Agreement -- a right
which remains available to the Philippines today.
Any WTO Member, which was not
a signatory to the Tokyo Round SCM Code, had a right of
action under Articles VI and XXIII of the GATT 1947 until
31 December 1995, and, like the Philippines, has a continuing
right to request a review under Article 21.2 of the SCM Agreement.
We believe that the situation
of a prospective Member of the WTO, which accedes under the provisions
of Article XII of the WTO Agreement, is different from
that of former contracting parties to the GATT 1947 or signatories
to the Tokyo Round SCM Code because those agreements did
not apply previously to its trading relations with other states.
Article XII:1 of the WTO Agreement provides, furthermore,
that a state may accede "on terms to be agreed between it
and the WTO".
In light of the above, we believe
that it is not necessary to determine whether applying Article
VI of the GATT 1994 independently of the SCM Agreement
would be more onerous than applying them together.
V. Applicability of Articles
I and II of the GATT 1994
We have concluded that, as a
result of the integrated nature of the WTO Agreement and
the specific language in Articles 10 and 32.1 of the SCM Agreement,
the provisions of the SCM Agreement relating to countervailing
duty investigations are not separable from the rights and obligations
of the GATT 1994 or the WTO Agreement taken as a whole.
We find, therefore, that the Panel did not err in concluding
at paragraphs 280 and 281 of the Panel Report that the applicability
of Article VI of the GATT 1994 to the countervailing duty investigation
which is the subject of this dispute, also determines the applicability
of Articles I and II of the GATT 1994 to that investigation.
In the same manner as the Panel found that "the measures
are neither _consistent¢
nor _inconsistent¢
with Article VI of GATT 1994; rather, they are simply not
subject to that Article"28, we believe that the measures here
are neither "consistent" nor "inconsistent"
with Articles I and II of the GATT 1994, because those Articles
are also not applicable law for the purposes of this dispute.
VI. Terms of Reference
Brazil argues in its appellant's
submission that the issue of consistency of its countervailing
duty measures with Articles I and II of the GATT 1994 is not within
the terms of reference of the Panel, and, therefore, should not
have been addressed by the Panel.29 In this appeal, the parties
to the dispute, the Philippines and Brazil, agreed on the following
special terms of reference pursuant to Article 7.3 of the DSU:
A panel's terms of reference
are important for two reasons. First, terms of reference fulfil
an important due process objective -- they give the parties and
third parties sufficient information concerning the claims at
issue in the dispute in order to allow them an opportunity to
respond to the complainant's case. Second, they establish the
jurisdiction of the panel by defining the precise claims at issue
in the dispute.
We agree, furthermore, with
the conclusions expressed by previous panels under the GATT 1947,
as well as under the Tokyo Round SCM Code and the Tokyo
Round Anti-dumping Code, that the "matter" referred
to a panel for consideration consists of the specific claims stated
by the parties to the dispute in the relevant documents specified
in the terms of reference.31 We agree with the approach taken in
previous adopted panel reports that a matter, which includes the
claims composing that matter, does not fall within a panel's terms
of reference unless the claims are identified in the documents
referred to or contained in the terms of reference.
In the present case, because
we agree with the conclusions of the Panel concerning applicable
law, we believe it is not necessary to determine whether the Philippines'
claims under Articles I and II of the GATT 1994 were within the
Panel's terms of reference.
VII. Findings and Conclusions
For the reasons set out in this
Report, the Appellate Body upholds the legal findings and conclusions
of the Panel.
The Appellate Body recommends
that the Dispute Settlement Body make a ruling consistent with
the legal findings and conclusions in the Panel Report and this
Report.
Signed in the original at Geneva
this 14th day of February 1997 by:
1 WT/DS22/R, 17 October 1996. 2 Done at Marrakesh, Morocco, 15 April 1994. 3 Panel Report, para. 294. 4 Panel Report, para. 295. 5 WT/DS22/8, 18 December 1996. 6 Pursuant to Rule 21(1) of the Working Procedures. 7 23 May 1969, 1155 U.N.T.S. 331; 8 International Legal Materials 679. 8 WT/DS2/9, adopted 20 May 1996. 9 By "transitional decisions", we refer to the Decision on Transitional Co-Existence of the GATT 1947 and the WTO Agreement, PC/12-L/7583, 13 December 1994; the Decision on Transitional Co-Existence of the Agreement on Interpretation and Application of Articles VI, XVI and XXIII of the General Agreement on Tariffs and Trade and the Marrakesh Agreement Establishing the World Trade Organization (the "Decision on Transitional Co-existence of the Tokyo Round SCM Code and the WTO Agreement"), SCM/186, 16 December 1994; and the Decision on Consequences of Withdrawal from or Termination of the Agreement on Interpretation and Application of Articles VI, XVI and XXIII of the General Agreement on Tariffs and Trade (the "Decision on Consequences of Withdrawal from or Termination of the Tokyo Round SCM Code"), SCM/187, 16 December 1994. 10 Panel Report, para. 242. 11 BISD 38S/30, adopted 11 July 1991. 12 BISD 37S/86, adopted 25 January 1990. 13 Agreement on Technical Barriers to Trade, BISD 26S/8; Agreement on Implementation of Article VII of the GATT - Protocol to the Agreement on Implementation of Article VII of the GATT, BISD 26S/116, 151; Agreement on Implementation of Article VI of the GATT (the "Tokyo Round Anti-dumping Code"), BISD 26S/171; Agreement on Interpretation and Application of Articles VI, XVI and XXIII of the General Agreement on Tariffs and Trade (the "Tokyo Round SCM Code"), BISD 26S/56; Agreement on Import Licensing Procedures, BISD 26S/154; Agreement on Government Procurement, BISD 26S/33; Agreement on Trade in Civil Aircraft, BISD 26S/162; Arrangement Regarding Bovine Meat, BISD 26S/84; and International Dairy Arrangement, BISD 26S/91. The Agreement on Import Licensing Procedures and the Agreement on Trade in Civil Aircraft made reference to Articles XXII and XXIII of the GATT 1947 for dispute settlement. The Arrangement Regarding Bovine Meat and the International Dairy Arrangement did not explicitly provide for dispute settlement. 14 By the end of 1994, the GATT 1947 had 128 contracting parties, whereas the Tokyo Round SCM Code had 24 signatories. 15 Canadian Countervailing Duties on Grain Corn from the United States, BISD 39S/411, adopted 26 March 1992; United States - Definition of Industry Concerning Wine and Grape Products, BISD 39S/436, adopted 28 April 1992; United States - Measures Affecting Imports of Softwood Lumber from Canada, SCM/162, adopted 27 October 1993; Brazil - Imposition of Provisional and Definitive Countervailing Duties on Milk Powder and Certain Types of Milk from the European Economic Community, SCM/179, adopted 28 April 1994; United States - Imposition of Countervailing Duties on Imports of Fresh and Chilled Atlantic Salmon From Norway, SCM/153, adopted 28 April 1994; United States - Countervailing Duties on Non-Rubber Footwear from Brazil, SCM/94, adopted 13 June 1995; EEC - Subsidies on Exports of Wheat Flour, SCM/42, 21 March 1983, unadopted; EEC - Subsidies on Exports of Pasta Products, SCM/43, 19 May 1983, unadopted; Canada - Imposition of Countervailing Duties on Imports of Boneless Manufacturing Beef from the EEC, SCM/85, 13 October 1987, unadopted; German Exchange Rate Scheme for Deutsche Airbus, SCM/142, 4 March 1992, unadopted; United States - Imposition of Countervailing Duties on Certain Hot-Rolled Lead and Bismuth Carbon Steel Products Originating in France, Germany and the United Kingdom, SCM/185, 15 November 1994, unadopted. 16 WTO Agreement, Articles XI, XII, XIII, XIV and XV, respectively. 17 DSU, Article 1 and Appendix 1. 18 DSU, Article 7. 19 Panel Report, para. 227. 20 Panel Report, para. 236, note 62. 21 Panel Report, para. 246; we understand the Panel's reference to "SCM Agreements" in this paragraph to mean the SCM Agreement and the Tokyo Round SCM Code. 22 As demonstrated by the United States - Pork panel. 23 There is an identical provision to Article 32.3 of the SCM Agreement contained in Article 18.3 of the Agreement on Implementation of Article VI of the General Agreement on Tariffs and Trade 1994 (the "Anti-dumping Agreement"). Similarly, there are mirror transitional decisions approved by the Tokyo Round Committee on Anti-dumping Measures, in the Decision on Transitional Co-Existence of the Agreement on Implementation of Article VI of the General Agreement on Tariffs and Trade and the Marrakesh Agreement Establishing the World Trade Organization, ADP/131, 16 December 1994; and the Decision on Consequences of Withdrawal from or Termination of the Agreement on Implementation of Article VI of the General Agreement on Tariffs and Trade, ADP/132, 16 December 1994. 24 In its appellant's submission dated 9 January 1997, at p. 37, para. 59, the Philippines argues that in United States - Gasoline, both the panel and the Appellate Body assessed the pre-WTO domestic regulatory process that led to the imposition of the United States' environmental measure at issue in that dispute. We note that, in that case, there was no issue with respect to the temporal application of the measure in dispute, nor did the panel or the Appellate Body examine the applicability of the Agreement on Technical Barriers to Trade. 25 The Decision on Transitional Co-Existence of the GATT 1947 and the WTO Agreement (PC/12-L/7583, 13 December 1994) was adopted by the CONTRACTING PARTIES to the GATT 1947 (6SS/SR/1); the Decision on Transitional Co-Existence of the Tokyo Round SCM Code and the WTO Agreement (SCM/186, 16 December 1994) was adopted by the Tokyo Round Committee on Subsidies and Countervailing Measures and noted by the CONTRACTING PARTIES (6SS/SR/1) and the WTO Committee on Subsidies and Countervailing Measures (G/SCM/M/1). The Decision on Consequences of Withdrawal from or Termination of the Tokyo Round SCM Code (SCM/187, 16 December 1994) was adopted by the Tokyo Round Committee on Subsidies and Countervailing Measures and noted by the CONTRACTING PARTIES (6SS/SR/1) and the WTO Committee on Subsidies and Countervailing Measures (G/SCM/M/1). 26 Panel Report, para. 270. 27 Panel Report, para. 272. 28 Panel Report, para. 280, note 71. 29 Brazil's appellant's submission, dated 14 January 1997, p. 1, para. 2. 30 WT/DS22/6, 18 April 1996. 31 United States - Denial of Most-Favoured-Nation Treatment as to Non-Rubber Footwear from Brazil, BISD 39S/128, adopted 19 June 1992, para. 6.2; EC - Imposition of Anti-dumping Duties on Imports of Cotton Yarn from Brazil, ADP/137, adopted 30 October 1995, para. 456; United States - Imposition of Countervailing Duties on Imports of Fresh and Chilled Atlantic Salmon from Norway, SCM/153, adopted 28 April 1994, para. 212; United States - Imposition of Anti-Dumping Duties on Imports of Fresh and Chilled Atlantic Salmon from Norway, ADP/87, adopted 26-27 April 1994, para. 336.
36 The term "countervailing duty" shall be understood to mean a special duty levied for the purpose of offsetting any subsidy bestowed directly or indirectly upon the manufacture, production or export of any merchandise, as provided for in paragraph 3 of Article VI of GATT 1994.
56 This paragraph
is not intended to preclude action under other relevant provisions
of GATT 1994, where appropriate.
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